WorldCom Strips Down
Laying the blame for the unprofitability of its resale business on slowing market growth, intense pricing pressure, and acquisition cash requirements, the debt-laden telecom operator said it would start pulling out immediately. It also stated that several facility-based carriers had already voiced their interest in purchasing the business.
WorldCom’s announcement that it will lay off some of the 2,200 people working at WorldCom Wireless as part of the process probably didn’t catch many observers by surprise. It followed a flurry of news reports last night and today that the company might be laying off as many as 16,000 people, or 20 percent of its 80,000-strong workforce.
Citing “executives familiar with the plan,” USAToday, which first ran the story last night, stated that WorldCom’s top management is still finalizing the cuts, but that they could be proposed to the company’s board of directors within the next couple of weeks.
The cuts, which follow the 12,700 headcount reduction at the company since the beginning of 2001, are likely to come from network operations, according to the report (see WorldCom Cuts Jobs, Gets Lower Ratings).
“The big crunch will probably come from MCI,” says Guzman & Company analyst Patrick Comack. “That part of the business is shrinking.”
WorldCom declined to comment today on the veracity of the claims. “That was a speculative story in USA Today,” says Julie Moore, a spokesperson for the company. “We are certainly seeking to right-size the business, but to speculate at this time on the details would be premature.”
As today’s announcement that WorldCom is dropping out of the wireless reseller business shows, there are still many questions about the company's $30 billion debt load. When John Sidgmore took over as the company’s CEO on April 30, after the ousting of long-time leader Bernie Ebbers (see Sidgmore Takes Control at WorldCom), he promised to evaluate all the company’s assets to decide which parts of the business it should stick with, and which ones it should back away from. And in today’s statement, Sidgmore claims that exiting the wireless resale business will strengthen the company’s cash position.
The question remains, however, whether today’s announced cuts are the extent of WorldCom’s cash-cutting efforts -- or will 16,000 more people at the company be out of work?
While observers have been expecting more cuts at WorldCom, which is the second largest long-distance phone company in the U.S., the number of layoffs being discussed in the news caught many by surprise.
“I was surprised by the number,” Comack says. “It’s bigger than I thought it would be.”
While Comack says he thinks the cuts are a sign that WorldCom is reacting to a negative situation in a positive way, he admits that if services and the company’s public relations suffer from a lack of personnel, many customers might decide to look elsewhere.
“The question is whether or not these short-term fixes will come back to haunt them in the long run,” concurs David Bank, an analyst with RBC Capital Markets.
Speaking on a panel at Supercomm 2002 on Monday, Vinton Cerf, a senior vice president of WorldCom, claimed the best investment advice at the moment would be to “skip the Big Mac at lunch and buy two shares of WorldCom.”
WorldCom’s stock, which has already lost more than 90 percent of its value over the last year, dropped an additional 2.48 percent in trading today, falling to $1.41 a share.
— Eugénie Larson, Reporter, Light Reading